The tissue microenvironment plays a critical role in cell survival and growth and can contribute to cell transformation and tumor development. Cellular interactions with the stroma and with other cells provide key signals that control cellular arrest or division, survival or death, and entrance or exit from a quiescent state. Together, these decisions are essential for maintenance of tissue homeostasis. Tissue oxygenation is an important component of the microenvironment that can acutely alter the behavior of a cell through the direct regulation of genes involved in cell survival, apoptosis, glucose metabolism, and angiogenesis. Loss of tissue homeostasis due to, for example, oncogene activation leads to the disruption of these signals and eventually can lead to cell transformation and tumor development. Here we review the role of tissue oxygenation, and in particular physiologic skin hypoxia, on cell survival and senescence and how it contributes to melanocyte transformation and melanoma development.